Why are pawn shop interest rates so high?

Pawn loans are usually small, short-term, and do not involve credit checks, so the shop's costs and risks are spread over relatively small dollar amounts. The shop must store and insure items, track paperwork, comply with regulations, and accept that some loans will never be repaid and the items will need to be sold.

When expressed as an annual rate, pawn loan costs can look very high compared with bank loans or credit cards. The maximum rates and fees are set by state law, and they vary significantly from state to state.

Before you pawn, ask for the total amount you will owe if you repay at the end of the term, not just the monthly rate. Compare that figure with other options, such as a small loan from a credit union, if you have access to one. Pawning works best for short, clearly planned needs.